CHAPTER I BASICS
1.1 INTRODUCTION
Have you ever wondered how the rich got their wealth and then
kept it growing? Do you dream of retiring early (or of being able to retire at all)?
Do you know that you should invest, but don't know where to start? If you
answered "yes" to any of the above questions, you've come to the right place.
The world of finance can be extremely intimidating, but it is firmly believe that the
stock market and greater financial world won't seem so complicated once you
learn some of the lingo and major concepts. It is emphasize, however, that
investing isn't a get-rich-quick scheme. Taking control of your personal finances
will take work, and, yes, there will be a learning curve. But the rewards will far
outweigh the required effort.
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RICHES
There are two things needed in these days; first, for rich men
to find out how poor men live; and second, for poor men to know how rich
men work.
Have you never been moved by poor men's fidelity, the image
of you they form in their simple minds? Why should you always talk of their
envy, without understanding that what they ask of you is not so much your
worldly goods, as something very hard to define, which they themselves can
put no name to; yet at times it consoles their loneliness; a dream of
splendor, of magnificence, a tawdry dream, a poor man's dream --and yet
God blesses it!
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INVESTMENT OPTIONS
INVESTMET
INVESTMET
OPTIONS
OPTIONS
MUTUAL
MUTUAL COMMODITY BANKS
BANKS
BOND
BOND COMMODITY
FUNDS
FUNDS
EQUITY POST
POST
EQUITY
OFFICE
OFFICE
Primary
Primary Secondary
Secondary
Market Market GOISAVING
GOI SAVING
Market Market NSCKVP
KVP
NSC BONDS
BONDS
IPO’s
IPO’s STOCKS
STOCKS
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WHOCAN
WHO CAN
INVEST?
INVEST?
FOREIGN
FOREIGN
RETAIL
RETAIL MUTUALFUND
MUTUAL FUND INSTITUTIONAL INVESTMENT
INVESTMENT
INSTITUTIONAL
INVESTOR
INVESTOR COMPANIES
COMPANIES INVESTOR(FII’s)
(FII’s) COMPANY
COMPANY
INVESTOR
INSURANCE
INSURANCE POST
POST
HUF
HUF BANKS
BANKS OFFICES
COMPANIES
COMPANIES OFFICES
√ Retail investor
An individual who purchases small amounts of securities for
him/herself, as opposed to an institutional investor. Also known as individual
investor or small investor.
A private investor who buys shares through a stockbroker for
his/her private portfolio.
√ Mutual Funds
A mutual fund is a company that pools money from many investors
and invests the money in stocks, bonds, short-term money-market instruments,
or other securities. Legally known as an "open-end company," a mutual fund is
one of three basic types of Investment Company. The two other basic types are
closed-end funds and Unit Investment Trusts (UITs).
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√ Investment Company
Firm that invests the pooled funds of retail investors for a fee. By
aggregating the funds of a large number of small investors into a specific
investments (in line with the objectives of the investors), an investment company
gives individual investors access to a wider range of securities than the investors
themselves would have been able to access. Also, individual investors should be
able to save on trading costs since the investment company is able to gain
economies of scale in operations. There are two types of investment companies:
open-end (mutual funds) and closed-end (investment trusts).
END OF CHAPTER I
“Never invest in a business you cannot understand”
CHAPTER II STOCKS
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√ Government
At this point when the world has become a global village and each
country wants to attract foreign capital, governments need booming markets.
Stock markets are the barometer of an economy. They send positive signals to
foreign investors when they are in a bull phase. Booming stock markets create
confidence and spur the governments to go ahead with their economic policies.
No government likes depressed stock markets.
√ Regulator
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Appointed by the government, the regulator also like booming stock
markets. A rising market is evidence of good governance. It also results in
additional revenue in the form of higher transaction and service charges due to
the increase in turnover.
√ Stock Exchanges
They facilitate stock transactions. During boom periods, incomes
skyrocket by way of transaction charges from brokers, listing fees, etc.
√ Brokers
In a bull markets the clientele increases and so do business
opportunities. This results in higher incomes for the brokers.
√ Banks
Their business increases with soaring stock markets as
opportunities open up in lending against stocks, margin trading, depository and
custodial business, etc. The feel good factor drives investors to banks for various
financial services.
√ Companies
Rising markets lead to higher stock prices. The net worth of owners
increase and companies can mop up more capital for expansions. Financially
healthy companies are able to attract and retain good talent, and keep their
shareholders happy.
√ Mutual Funds
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Higher Stock price means increased net asset values. Rising
markets attract more investors which mean more money under management,
and higher asset management fees. They are also able to come out with different
kinds of funds to satisfy every requirement.
√ Media
The media plays a pivotal role in spreading information. An
increase in investors means increased viewers/readers, which translates into
increased advertisement revenue.
√ Investors
The lure of quick money draws investors in a bull market. Day
traders become very active as they are rewarded with easy gains.
√ Operators
He is the smartest and shrewdest of all. He is aware that the Bull
Run psychology creates the Bull Run. He knows the system, he understands the
psychology of the participants, and he has the ability to exploit that for his own
benefit. He is the king-maker who uses his knowledge to win over investors,
brokers and company management.
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Income Stocks
Growth Stocks
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Penny Stocks
Just as their name suggests, penny stocks are stocks that usually
sell for less than a rupee a share (although some people define a penny stock as
one selling for less than Rs.5 a share). They are also called pink sheet stocks
because at one time the names and prices of these stocks were printed on pink
paper. The advantage of trading penny stocks is that the share price is so low
that almost everyone can afford to buy shares. For example, with only Rs.1000
you can buy 2000 shares of an Rs 0.50 penny stock. If the stock ever makes it to
a rupee, you made a 100 percent profit. That is the beauty of penny stocks. On
the other hand, you could put your order in at Rs 0.75 a share, and a couple of
days later the stock could fall to Rs.0.50. It happens all the time. A number of
traders specialize in these stocks, although this is not easy.
After all, penny stocks are so cheap for a reason. That reason
could be poor management, no earnings, or too much debt, but whatever it is,
there usually aren’t enough buyers to make the stock go higher. Even with their
low price, the trading volume on penny stocks is exceptionally low.
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The stock market is all about making money. Quite simply, if you
buy stock in a company that is doing well and making profits, then the stock you
own should go up in price. You make money in the stock market by buying a
stock at one price and selling it at a higher price. It’s that simple. There is no
guarantee, of course, that you’ll make money. Even the stocks of good
companies can sometimes go down. If you buy stocks in companies that do well,
you should be rewarded with a higher stock price. It doesn’t always work out that
way, but that is the risk you take when you participate in the market.
END OF CHAPTER II
“Never Love or Marry your Stock, Just have a Short Term Affair”
Many people find investing risky because they are not in control of
one or more of these ten investor controls. However, investor may gain some
insights on how he can gain greater control as an investor—especially control
number 7, the control over entity, timing, and characteristics. This is where many
investors lack control, need more control, or simply lack any basic understanding
about investing.
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CHAPTER IV INVESTING
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work so it earns you an additional profit. Even though this is a simple idea, it's the
most important concept for you to understand.
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fortune. But this seems easy only in hindsight. At the point of time to go against
crowd is the most difficult but the most sensible thing to do.
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They have the patience to wait till the right moment. Brokers usually do not like
such investors as they do not churn their portfolios regularly. Intellectual
investors as they do not churn their portfolios regularly. Intellectual investors are
also emotionally strong. That is the reason they are able to exercise such
restraint.
We all want to be such investors but we cannot, as we believe that
we are not all as intellectually blessed as they are. This is a wrong notion. The
reason they are intellectually capable is because they work hard and make the
effort to reach that stage. They constantly explore opportunities by talking with
managements, examining different viewpoints on business, trying to understand
economic policies and its effect on business environment, etc. Their intellectual
capability is derived from their hard work and their strong belief in the long-term
approach to investments. Moreover, they use common sense in their judgements
and are not swayed by rumours.
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When they are on the move, they are busy on their mobile phones.
Market gossip excites them and they make decisions based on rumours. News
regarding political developments, monsoon forecasts, inflation figures, change in
a minister’s portfolio, and GDP growth figures play an important role in their lives.
They tend to time the markets on such news. In every way they expend
tremendous physical energy and effort to beat the market by outmanoeuvring the
competition. But they don’t realise that others are also doing the same.
The day traders also take the physically difficult path of investing.
They spend the entire day collecting information and make decisions based on
that information. So, with all the fund managers and the day traders treading the
same path, how can any one of them achieve better results???
Good opportunities come once in a while and you spot them only
when you are cool and have the time to think. The physically difficult path is
based on the assumption that there are a lot of opportunities out there and you
have to keep digging hard to be successful at investing. The current volatility in
the markets is the result of too many people trying to invest by this method. Life
is simple. We make it complicated.
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When analysts on TV tell you that the market is going to crash and
the stock prices will nose dive, don’t sell. When newspapers report a bear phase
and tell you to liquidate portfolio, don’t sell. When your neighbours exit the stock
markets, don’t follow them. When you broker tells you to sell as he sees bad
times ahead do not listen to his advice and sell. Emotional discipline is the most
difficult. It is not easy to control your emotions and go against the herd. But you
need to believe in yourself and the investment policy to which you are committed.
It often pays to go against popular opinion. The emotionally difficult path like the
intellectually difficult pay lays stress on the virtue of patience. Both are based on
the view that the long-term approach to investments is the only strategy that can
enrich investors and increase their wealth. The stress is on the cash flow
approach. Patience focuses an investor’s attention on the goal of compounding
money over a long period. It can be magic even when the rate is modest. To give
an example: If one were to compound money at a modest rate of seven percent
the money would double at the end of 10 years and it would be 16 times at the
end of 40 years. Patience also helps you to control transaction costs.
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The more you churn your portfolio the more you pay the broker in
terms of taxes of brokerage and off course the government in terms of taxes on
your capital gains. All these costs could be avoided if one has patience.
The emotionally difficult path requires an understanding of how our
emotions guide our decision-making especially when we deal with money. Our
emotions directly affect our decisions on investments and expenditure. We have
to learn to think with our emotions rather than have our emotions do the thinking.
Understanding our own anomalies as also that of others will help us become
better investors.
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END OF CHAPTER IV
Investing is risking and should be approached
with care!!!
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Here, investor will find some of the most popular strategies for
finding good stocks (or at least avoiding bad ones). In other words, investor will
see the art of stock picking – selecting stocks based on a certain set of criteria,
with the aim of achieving a rate of return that is greater than the market's overall
average.
This doesn't mean investor can't expand his wealth through the
stock market. It's just better to think of stock-picking as an art rather than a
science.
There are a few reasons for this:
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3. Because of the human (often irrational) element inherent in the forces that
move the stock market, stocks do not always do what you anticipate they'll do.
Emotions can change quickly and unpredictably. And unfortunately, when
confidence turns into fear, the stock market can be a dangerous place.
The bottom line is that there is no one way to pick stocks. Better to
think of every stock strategy as nothing more than an application of a theory - a
"best guess" of how to invest. And sometimes two seemingly opposed theories
can be successful at the same time. Perhaps just as important as considering
theory, is determining how well an investment strategy fits investor personal
outlook, time frame, risk tolerance and the amount of time investor want to
devote to investing and picking stocks.
Without further ado, let's start by delving into one of the most
basic and crucial aspects of stock-picking: fundamental analysis, whose theory
underlies all of the strategies explore here. Although there are many differences
between each strategy, they all come down to finding the worth of a company.
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√ The Theory
Doing basic fundamental valuation is quite straightforward; all it
takes is a little time and energy. The goal of analyzing a company's fundamentals
is to find a stock's intrinsic value; a fancy term for what investor believes a stock
is really worth - as opposed to the value at which it is being traded in the
marketplace. If the intrinsic value is more than the current share price, investor’s
analysis is showing that the stock is worth more than its price and that it makes
sense to buy the stock.
The idea behind intrinsic value equaling future profits makes sense
if investor thinks about how a business provides value for its owner(s). If investor
has a small business, its worth is the money he can take from the company year
after year (not the growth of the stock). And he can take something out of the
company only if he have something left over after he pay for supplies and
salaries, reinvest in new equipment, and so on. A business is all about profits,
plain old revenue minus expenses - the basis of intrinsic value.
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√ Management
The backbone of any successful company is strong management.
The people at the top ultimately make the strategic decisions and therefore serve
as a crucial factor determining the fate of the company. To assess the strength of
management, investors can simply ask the standard five Ws: who, where, what,
when and why?
√ Who?
Do some research, and find out who is running the company.
Among other things, you should know who its CEO, CFO, COO and CIO (chief
information officer) are. Then you can move onto the next question.
√ Where?
Investor need to find out where these people come from, specifically,
their educational and employment backgrounds. Investor should ask himself if
these backgrounds make the people suitable for directing the company in its
industry. A management team consisting of people who come from completely
unrelated industries should raise questions. If the CEO of a newly-formed mining
company previously worked in the industry, again investor should ask himself
whether he or she has the necessary qualities to lead a mining company to
success.
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Once investor knows the style of the managers, find out when this
team took over the company. Jack Welch, for example, was CEO of General
Electric for over 20 years. His long tenure is a good indication that he was a
successful and profitable manager; otherwise, the shareholders and the board of
directors wouldn't have kept him around. If a company is doing poorly, one of the
first actions taken is management restructuring, which is a nice way of saying "a
change in management due to poor results". If investor sees a company
continually changing managers, it may be a sign to invest elsewhere.
√ Why?
A final factor to investigate is why these people have become
managers. Look at the manager's employment history, and try to see if these
reasons are clear. Does this person have the qualities investor believe are
needed to make someone a good manager for this company? Has s/he been
hired because of past successes and achievements, or has s/he acquired the
position through questionable means, such as self-appointment after inheriting
the company?
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√ Industry/Competition
Aside from having a general understanding of what a company
does, investor should analyze the characteristics of its industry, such as its
growth potential. A mediocre company in a great industry can provide a solid
return, while a mediocre company in a poor industry will likely take a bite out of
your portfolio. Of course, discerning a company's stage of growth will involve
approximation, but common sense can go a long way: it's not hard to see that the
growth prospects of a high-tech industry are greater than those of the railway
industry. It's just a matter of asking, if the demand for the industry is growing.
√ Brand Name
A valuable brand reflects years of product development and
marketing. Take for example the most popular brand name in India: Reliance.
Many estimate that the intangible value of Reliance brand name is in the billions
of rupees! Massive corporations such as HLL rely on hundreds of popular brand
names. Having a portfolio of brands diversifies risk because the good
performance of one brand can compensate for the underperformers.
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As the name suggests, growth stocks are companies that grow
substantially faster than others. Growth investors are therefore primarily
concerned with young companies. The theory is that growth in earnings and/or
revenues will directly translate into an increase in the stock price. Typically a
growth investor looks for investments in rapidly expanding industries especially
those related to new technology. Profits are realized through capital gains and
not dividends as nearly all growth companies reinvest their earnings and do not
pay a dividend.
√ No Automatic Formula
Growth investors are concerned with a company's future growth
potential, but there is no absolute formula for evaluating this potential. Every
method of picking growth stocks (or any other type of stock) requires some
individual interpretation and judgment. Growth investors use certain methods - or
sets of guidelines or criteria - as a framework for their analysis, but these
methods must be applied with a company's particular situation in mind. More
specifically, the investor must consider the company in relation to its past
performance and its industry's performance. The application of any one guideline
or criterion may therefore change from company to company and from industry to
industry.
Do you feel that you now have a firm grasp of the principles of
both value and growth investing? If you're comfortable with these two stock-
picking methodologies, then you're ready to learn about a newer, hybrid system
of stock selection. Here we take a look at growth at a reasonable price, or
GARP.
√ What Is GARP?
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The GARP strategy is a combination of both value and growth
investing: it looks for companies that are somewhat undervalued and have solid
sustainable growth potential. The criteria which GARPers look for in a company fall
right in between those sought by the value and growth investors.
Below is a diagram illustrating how the GARP-preferred levels of price and growth
compare to the levels sought by value and growth investors?
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Dividend Yield
Income investing is not simply about investing in companies with
the highest dividends (in dollar figures). The more important gauge is the
dividend yield, calculated by dividing the annual dividend per share by share
price. This measures the actual return that a dividend gives the owner of the
stock. For example, a company with a share price of Rs.100 and a dividend of
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Rs.6 per share has a 6% dividend yield, or 6% return from dividends. The
average dividend yield for companies in the S&P 500 is 2-3%.
5.7 CANSLIM
The name may suggest some boring government agency, but this
acronym actually stands for a very successful investment strategy. What makes
CANSLIM different is its attention to tangibles such as earnings, as well as
intangibles like a company's overall strength and ideas. The best thing about this
strategy is that there's evidence that it works: there are countless examples of
companies that, over the last half of the 20th century, met CANSLIM criteria
before increasing enormously in price. In this section we explore each of the
seven components of the CANSLIM system.
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√ C = Current Earnings
O’Neil emphasizes the importance of choosing stocks whose
earnings per share (EPS) in the most recent quarter have grown on a yearly
basis. For example, a company’s EPS figures reported in this year’s April-June
quarter should have grown relative to the EPS figures for that same three-month
period one year ago. (If you're unfamiliar with EPS, see Types of EPS.)
√ A = Annual Earnings
CANSLIM also acknowledges the importance of annual earnings
growth. The system indicates that a company should have shown good annual
growth (annual EPS) in each of the last five years.
√ N = New
O’Neil’s third criterion for a good company is that it has recently
undergone a change, which is often necessary for a company to become
successful. Whether it is a new management team, a new product, a new
market, or a new high in stock price, O’Neil found that 95% of the companies he
studied had experienced something new.
√ L = Leader or Laggard
In this part of CANSLIM analysis, distinguishing between market
leaders and market laggards is of key importance. In each industry, there are
always those that lead, providing great gains to shareholders, and those that lag
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behind, providing returns that are mediocre at best. The idea is to separate the
contenders from the pretenders.
I = Institutional Sponsorship
CANSLIM recognizes the importance of companies having some
institutional sponsorship. Basically, this criterion is based on the idea that if a
company has no institutional sponsorship, all of the thousands of institutional
money managers have passed over the company. CANSLIM suggests that a
stock worth investing in has at least three to 10 institutional owners.
M = Market Direction
The final CANSLIM criterion is market direction. When picking
stocks, it is important to recognize what kind of a market you are in, whether it is
a bear or a bull. Although O’Neil is not a market timer, he argues that if investors
don’t understand market direction, they may end up investing a trend and thus
compromise gains or even lose significantly. Against the Daily Prices and
Volumes
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technician must interpret indicators and patterns, and this process is more
subjective than formulaic.
√ Most of the strategies discussed in this tutorial use the tools and
techniques of fundamental analysis, whose main objective is to find the worth of
a company, or its intrinsic value.
√ Value investors, concerned with the present, look for stocks selling at a
price that is lower than the estimated worth of the company, as reflected by its
fundamentals. Growth investors are concerned with the future, buying
companies that may be trading higher than their intrinsic worth but show the
potential to grow and one day exceed their current valuations.
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END OF CHAPTER V
“Be fearful when others are greedy, Be greedy when others fear”
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This is a true story of a person who ran a coaching class with one
of his colleagues. They started off well and within a couple of months they were
full to capacity. After six months a few students complained to person about his
colleague’s rude behaviour. The allegation was that he was very short-tempered
and arrogant. They wanted him removed or else they would discontinue the
classes. That person was worried. His colleague was his partner and he could
not be removed. Moreover he was a brilliant professional and an able tutor. After
a couple of weeks the colleague fell ill and was absent for some time. The
students were very happy. They thought that they had been successful in
removing him. One day that person learned that the colleague had brain tumour
and needed an operation. This news shocked that person, as now his partner
would be out of action for quite some time. He informed the students of this
calamity. The students were stunned and this shock changed their attitude.
Hatred and resentment gave way to empathy and love. They visited him at the
hospital and took him flowers. They repented their stand and prayed for his early
recovery so that he could come back to teach.
The purpose of this story is to understand that as humans we are
emotional beings and our behaviour and decisions are guided by our emotions.
Frequently emotions prompt us to make decisions that may not be in our rational
financial interest. Indeed, decisions that enrich us emotionally may impoverish us
financially. Behavioural finance is the study of how emotions and cognitive errors
can cause disasters in our financial affairs.
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Irrational market behaviour when it occurs. The second issue is how to avoid
making sub-optimal decisions as an investor. The goal is to close the gap
between how we actually make decisions and how we should make decisions.
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√ Regret Theory
Fear-of-regret, or simply regret, theory deals with the emotional
reaction people experience after realizing they've made an error in judgment.
Faced with the prospect of selling a stock, investors become emotionally affected
by the price at which they purchased the stock. So, they avoid selling it as a way
to avoid the regret of having made a bad investment, as well as the
embarrassment of reporting a loss. We all hate to be wrong, don't we?
What investors should really ask them when contemplating selling a
stock is, "What are the consequences of repeating the same purchase if this
security were already liquidated and would I invest in it again?" If the answer is
"no", it's time to sell; otherwise, the result is regret of buying a losing stock and
the regret of not selling when it became clear that a poor investment decision
was made - and a vicious cycle ensues where avoiding regret leads to more
regret.
Regret theory can also hold true for investors who find a stock they
had considered buying but did not went up in value. Some investors avoid the
possibility of feeling this regret by following the conventional wisdom and buying
only stocks that everyone else is buying, rationalizing their decision with
"everyone else is doing it". Oddly enough, many people feel much less
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embarrassed about losing money on a popular stock that half the world owns -
like Reliance and Infosys - than about losing on an unknown or unpopular stock.
√ Mental Accounting
Humans have a tendency to place particular events into mental
compartments, and the difference between these compartments sometimes
impacts our behavior more than the events themselves.
Say, for example, you aim to catch a show at the local theater,
and tickets are Rs 20 each. When you get there you realize you've lost a Rs 20
bill. Do you buy a Rs 20 ticket for the show anyway? Behavior finance has found
that roughly 88% of people in this situation would do so. Now, let's say you paid
for the Rs 20 ticket in advance. When you arrive at the door, you realize your
ticket is at home. Would you pay Rs 20 to purchase another? Only 40 % of
respondents would buy another. Notice, however, that in both scenarios you're
out Rs 40: different scenarios, same amount of money, different mental
compartments. Pretty silly, huh?
An investing example of mental accounting is best illustrated by the
hesitation to sell an investment that once had monstrous gains and now has a
modest gain. During an economic boom and bull market, people get accustomed
to healthy, albeit paper, gains. When the market correction deflates investor's net
worth, they're more hesitant to sell at the smaller profit margin. They create
mental compartments for the gains they once had, causing them to wait for the
return of that gainful period.
√ Anchoring
In the absence of better or new information, investors often assume
that the market price is the correct price. People tend to place too much
credence in recent market views, opinions and events, and mistakenly
extrapolate recent trends that differ from historical, long-term averages and
probabilities.
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In bull markets, investment decisions are often influenced by price
anchors, prices deemed significant because of their closeness to recent prices.
This makes the more distant returns of the past irrelevant in investors' decisions.
Over-/Under-Reacting
Investors get optimistic when the market goes up, assuming it will
continue to do so. Conversely, investors become extremely pessimistic amid
downturns. A consequence of anchoring, placing too much importance on recent
events while ignoring historical data, is an over- or under-reaction to market
events which results in prices falling too much on bad news and rise too much on
good news.
√ Overconfidence
People generally rate themselves as being above average in their
abilities. They also overestimate the precision of their knowledge and their
knowledge relative to others. Many investors believe they can consistently time
the market. But in reality there's an overwhelming amount of evidence that
proves otherwise. Overconfidence results in excess trades, with trading costs
denting profits.
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Bird’s Eye
Behavioral finance certainly reflects some of the attitudes
embedded in the investment system. Behaviorists will argue that investors often
behave irrationally, producing inefficient markets and mispriced securities
- opportunities to make money. That may be true for an instant. But, consistently
uncovering these inefficiencies is a challenge. Questions remain over whether
these behavioral finance theories can be used to manage your money effectively
and economically.
That said, investors can be their own worst enemies. Trying to
outguess the market doesn't pay off over the long term. In fact, it often results in
quirky, irrational behavior, not to mention a dent in your wealth. Implementing a
strategy that is well thought out and sticking to it may help you avoid many of
these common investing mistakes.
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END OF CHAPTER VI
“Gaps between perception and realty are where
Investment opportunities are born”
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Here, some of the mistakes which are done by retail investors are
as follows:
Mistake #1:
√ Investor Don’t Sell Losing Stocks
For a variety of reasons, some investor holds onto their losing
stocks too long. Failure to get out of losing positions early is probably the number
one reason why so many investing and trading accounts are destroyed. The
reasons investor hold onto losing stocks is primarily psychological.
To keep your losses small, investor need a plan before they buy
their first stock. One rule is so important that investor should post it in front of
their computer or on their desk: If they lose more than 10 percent on an
investment, sell. They lost, so they sell the stock. They can put a stop loss order
at 10 percent below the purchase price when they buy the stock, or they can
make a mental note. The main point is that investor should take action when their
stock is losing money.
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Mistake #2:
√ Investor let their Winning Stocks Turn into Losers
It seems as if you can’t win no matter when you sell. If you sell a
stock for a gain, you are left with the lingering feeling that if you had held it a little
longer, you’d have made more money. In contrast, some people made tons of
money in the stock market, then sat back and watched helplessly while all their
profits disappeared (what the market gives, the market takes away). Some are
still in denial about the fact that many of their favorite stocks will never return to
even. Many people lost not only their gains but their original investment as well.
For these people, it would have been less painful to have never made money in
the market at all than to have won and lost it all.
Mistake #3:
Investor Get Too Emotional about their Stock Picks
Inability to control their emotions is the main reason why most
people should not participate in the stock market. When investing in the market
with substantial money at stake, many people are flooded with emotions that
compel them to make the wrong decisions. In fact, becoming too emotional about
your investments is a clue that you could lose money. Making money should be
as boring as waiting in line at the supermarket.
A common problem, and one that especially afflicts those who have
tasted success in the market, is overconfidence. Although some self-confidence
is necessary if you are going to invest in the market, allowing your ego to get in
the way of your investing is a dangerous sign. One of the reasons the bull market
was destined to end so abruptly was that too many people were making too
much money and thought they were geniuses. An old but true saying is, “There
are no geniuses in a bull market.” The point is that people thought they were
geniuses, but in fact they were just being carried by the strength of a bull market.
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Before the bull market’s abrupt end, many investors got so greedy
that they couldn’t think straight. They were convinced that the good times would
last forever. The signs of greed were everywhere:
Mistake #4:
√ Investor Bet Money on Only One or Two Stocks
One of the problems with investing directly in the stock market is
that most people don’t have enough money to maintain a properly diversified
portfolio. (In general, no one stock should make up more than 10 percent of your
portfolio.) Although diversification limits your upside gains, it also protects you in
case one of your investments does badly.
If you feel that you must bet all your money on only one or two
stocks, then buy stocks in conservative companies with low P/Es (less than 10)
that pump up their returns with quarterly dividends. You want stocks in
companies that are so good that they will be profitable for years.
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Mistake #5:
√ Investors Are Unable to Be both Disciplined and Flexible
Almost every professional investor will rightly claim that a lack of
discipline is the main reason that most people lose money in the market. If you
are disciplined, you have a strategy, a plan, and a set of rules, and no matter
what you are feeling, you stick to your strategy, plan, and rules. Discipline means
having the knowledge to know what to do (the easy part) and the willpower and
courage to actually do it (the hard part). It means that you have to stick to your
strategy and obey your rules. This has always worked for successful investors
and mutual fund managers.
Although the pros are right in claiming that you need discipline if
you are to be successful in the market, you also need to balance this with a
healthy dose of flexibility. Some investors were so rigidly disciplined about
sticking with their stock strategy that they didn’t react when the market and their
stocks turned against them. In the name of discipline, many investors went down
with the sinking ship. Discipline is essential, but you must be realistic enough to
realize that you could be wrong. You have to be flexible enough to change your
strategy, your plan, and your rules, especially if you are losing money.
Mistake #6:
√ Investors Don’t Learn their Mistakes
Most experienced investors and traders know that you learn more
from your losers than from your winners. One of the worst things that happened
to many investors in the tech boom was that they made money in the market too
quickly and easily. When the easy money stopped and the market plunged, many
of them had no idea what to do next. Why? They didn’t know how it felt to lose
money. Because they had made money the wrong way, they were destined to
give it all back.
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If you lose more than 10 percent in the market, there are a few
things you can do. Instead of burying your head in the sand, take the time to
understand your mistakes. It’s not useful to make excuses and act as if your
stock losses are only paper losses that will be made up in the future. In the
market, everything doesn’t always work out in the end. Accept the loss and make
sure you don’t make the same mistake again.
Mistake #7:
√ Investor listens or Get Tips from the Wrong People
If an investor eyes glaze over when they read about fundamental or
technical analysis, there is a simpler way to find stocks to buy—stock tips. The
beauty of tips is that investors can make money without doing any work. If this
sounds too good to be true, it is.
In fact, one of the easiest ways to lose money in the market is by
listening to tips, especially if they come from well-meaning but uninformed
relatives or acquaintances. These people often become cheerleaders for a stock,
trying to convince you to buy it. Because it’s hard to say no to easy money
(especially when the tip comes from a trusted source), there are some steps you
can take to limit your risks.
Should you get your stock picks from experts? Don’t forget that
most of the experts who appeared on television or were quoted in magazines
were terrible stock pickers. Analysts lied, economists misjudged the economy,
CEOs were overly optimistic, and accounting firms fudged the numbers to make
losing companies look like winners.
At the same time, greedy and lazy investors must take
responsibility for buying stocks based on tips.
(“Everyone wanted to be a player but we ended up being
played.”) The best advice you should received on the market was also the
simplest: “Keep your ears shut”
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Mistake #8:
√ Investor’s Follow the Crowd
If investor want to lose money? Then do what everyone else is
doing.
Unfortunately, it is excruciatingly difficult to think differently from
everyone else. If you study the lives of some of the greatest traders and investors
in the recent past, you will find that they often made their fortunes by doing the
opposite of what the crowd was doing. That means buying when other people are
selling and selling when other people are buying.
If you study the psychology of group behavior, you find many
periods and events in history that attest to herd mentality—or the “madness of
crowds,” as one author put it. Although the crowds can win, they don’t win for
long. As mentioned earlier, the signal that a bull market is ending is that it seems
as though everyone is in the market. Conversely, a signal of a bear market’s end
is that people are too afraid to invest in the market. When almost everyone is
avoiding the stock market, and it seems like perhaps the worst possible time to
invest, the bear market will end. Unfortunately, no one rings a bell to announce
the end. You have to figure it out for yourself.
Keep in mind that perception about the market change very rapidly.
Mistake #9:
√ Investor’s Aren’t Prepared for the Worst
Before investor get into the market, they should be prepared, not
scared. Although you should always hope for the best, you must be prepared for
the worst. The biggest mistake many investors make is thinking that their stocks
won’t go down. They are not prepared for an extended bear market, a recession,
deflation, a market crash, or an unanticipated event that will ruin the market.
Even if you don’t expect a financial disaster, create a “crash proof” plan based on
logic and common sense, not fear.
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Mistake #10:
√ Investor’s Miss Out or Mismanage Money
Managing money is a difficult skill for most people, but it’s one of
the most important skills to have. Unfortunately, if you can’t manage money,
you’re destined to have financial problems. In the end, it’s not how much you
make but how much you keep that matters. Do you want to know the secret to
making money in the stock market or with any investment? Don’t lose money. If
you think about it long enough, you’ll realize that this makes a lot of sense.
Obviously, it’s not easy to find investments where you don’t lose money, but that
shouldn’t stop you from trying.
Just as harmful as mismanaging money is missing out on
moneymaking opportunities. A little bit of fear keeps you on your toes, but too
much fear can cause you to miss out on profitable investments or trades. It’s the
fear of loss that prevents many people from buying at the bottom. It’s the fear of
missing out on higher profits that prevents people from selling before it’s too late.
Usually, fear results from a lack of information. That is why it’s essential that you
do your own research when a financial opportunity comes your way. This gives
you an opportunity to make an informed decision based on the facts, not on
emotion. Obviously, you aren’t privy to all the information that you need in order
to be 100 percent right. You have to make a decision based on the best
information you have at the time. Many times you’ll be wrong.
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This sounds ultra simplistic. Set and establish goals for your future
and determine how those goals are influenced by the results of your investing. It
is never wise to invest solely for the sake of "doing well" or "I want to retire
comfortably". Goals such as these leave too much ambiguity and room for error.
Your portfolio should reflect your goals (to retire at 55 with a specific income),
risk tolerance. Think of it this way, you are on a journey. How do you know if you
have arrived if you do not know where you are going?
Earning a high level of return requires taking more risk, but taking
more risk does not always equate to a higher return. It is a well-known fact that in
order to achieve higher return rates you must assume a higher level of risk which
can and typically does equate to losses within a portfolio greater than many
investors are comfortable with accepting. However, just because a holding or
portfolio is high risk it is not necessarily capable of generating high returns. In
some cases something is considered "high risk" because it is unlikely to generate
a moderate or high return. In fact as Mark Twain once remarked, "I am more
concerned about the return of my money than the return on my money".
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Many investors I have spoken with over time wonder about how
long it takes to double their money. This is typically presented in a statement that
they desire their money to double every 3 or 4 years. The rule of 72 is one of
those rules of thumb for quick and basic calculation. Take the rate of return and
divide it into 72. This will be the approximate amount of time it takes for the
money to double at the specified rate of return. For example, if you assume a
12% rate of return and divide 72 by 12 then your money would double in 6 years.
For those of you who wish your money to double every 3 or 4 years this should
give you an idea of the level of return (and subsequent level of risk) you must
achieve.
Turn off the talking heads on TV and put down the latest investment
periodical. These formats are informative if taken lightly and in the proper amount
but they are more interested in selling subscriptions and driving ratings than they
are about giving quality advice. The movements generated by the advice of those
in the television and print media are not always the best for the investor. News
only sells when it gets our attention and unfortunately that hardly ever equates to
good news.
END OF CHAPTER VII
An investor should act as though he had a lifetime decision card with
just twenty punches on it.
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1. A strategy is only as good as the person using it. In other words, no matter
how brilliant and ingenious the strategy, you can still lose money.
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3. Don’t become so devoted to a strategy that you are blind to the fact that you
are losing money. Money is the scorecard that determines whether your
strategy is working.
You have to take the time to find the strategy or strategies that fit
your personality and lifestyle. Unfortunately, there are no magic answers to
finding success in the stock market. For most people, the only way to find out
what ultimately works on Dalal Street is through trial and error.
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With more and more companies coming out with tempting IPO
or additional offers, there is greater need to exert caution and pick the best IPO
investments. Four critical factors to be studied in an IPO offer document, before
making an IPO investment.
In such a scenario it is but natural for the euphoria to pass on to
the primary market. We have more and more companies coming out with IPO’s
or additional offers. And predictably enough, these issues have generated huge
interest amongst the investors and raised thousands of crores. Practically all
such issues have been hugely oversubscribed. And most of them have given
huge listing gains to the investors.
One good thing about the IPO market vis-à-vis the earlier times has
been that most of them have been from good companies and at reasonable
prices. This trend, however, seems to be tapering off and we are increasingly
seeing public issues from the relatively not-so-good or known companies and at
fairly stretched prices. Therefore, it becomes necessary for the investors to
become cautious and be more selective about their investments in IPO’s.
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The future prospects of the Company and the industry would play
an important role in the performance of the scrip on the stock exchange.
Check the objects. How will they impact the future prospects? How
will the funds raised be utilised? Will it additionally benefit the company? Is the
money being raised for a new project, which will add to the bottomline of the
company? If its’ an offer-for-sale, it means the existing shareholders are selling a
part of their stake in the Company. The amounts raised from the issue will not go
to the Company. Therefore, the Company will not benefit from an offer for sale. If
the purpose of the issue is to list the company on the stock exchange and the 4
Ps are positive, then one can consider investing.
CHAPTER IX RATIOS
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14-20 For many companies a P/E ratio in this range may be considered fair value.
Either the stock is overvalued or the company's earnings have increased since the
21-28
last earnings figure was published.
A company whose shares have a very high P/E either really does have an
28+
exceptionally rosy future or the stock may be the subject of a speculative bubble.
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Calculated as:
Calculated as:
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This ratio also gives some idea of whether you're paying too much
for what would be left if the company went bankrupt immediately.
Since the shareholders are the owners of the business, they are
entitled to their share of the profits. This is paid out as a dividend, and is usually
expressed as an amount per share. This is because the total amount a
shareholder gets is reflected by their shareholdings in the company. The dividend
per share shows how much the company has paid out on each individual share,
and so is worked out as:-
DIVIDEN PER SHARE = Dividends paid
Total number of shares issued
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This ratio is not useful for companies losing money, since they have
no profit. A low profit margin can indicate pricing strategy and/or the impact
competition has on margins.
END OF CHAPTER IX
SMART PEOPLE
INVESTS SMARTLY
KNOWLEDGABLE PEOPLE
INVESTS FOOLISHLY
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Many investing websites have hot stock picks and tips - most of
which never pan out? Problem is stock picks aren't what makes you a successful
investor. They key to making money in the long run is understands the
fundamental principles of investing.
These tips are by no means the only way to make money in the
market. They are, however, eight pieces of solid advice that will help you come
out on top in the long run.
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Ingredient #2:
Focus on the Important Factors
• Once you filter out the noise in the stock market, you can objectively
analyze stocks.
• Focus on factors such as profit margins, cash flow and general
financial health.
Ingredient #3:
Avoid Big Mistakes (and Losses)
• After analyzing your stocks for potential red flags, be sure there is still
a built-in margin of safety.
Ingredient #4:
Don't Lose Sight of the Big Picture
• Understand how the bigger picture affects a company before you
invest in it.
Ingredient #5:
Know Thyself
• Accurately assess your financial and personal situation and build a
portfolio that is well-suited to your financial goals and personality.
Ingredient #6:
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Avoid Conflicts of Interest
• Getting investment ideas from an unbiased source is critical (just ask
those who invested in the tech stocks to which analysts had given "buy"
ratings while privately calling them "junk").
Ingredient #7:
Remain Confidently Contrarian
• When everyone is talking about something, it’s probably too late.
Don'ts
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9) Don’t deal with unregistered brokers/sub-brokers, intermediaries.
10) Don’t forgot taking due documents of transactions, in
good faith even from people whom you know.
11) Don’t fall prey to promises of unrealistic returns.
12) Don’t get misled by companies showing
approvals/registrations from Government agencies as the
approvals could be for certain other purposes and not for the
securities you are buying.
13) Don’t transact based on rumors generally called ‘tips’.
14) Don’t forget to take note of risks involved in the
investment.
15) Don’t get misled by guarantees of repayment of your
investments through post-dated cheques.
16) Don’t panic when facing a problem.
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• a. 55 or over
• b. Between 36 and 55
• c. Under 35
2. Over the next ten years your annual family income is likely to:
• a. Go down substantially
• b. Grow at slightly above inflation rate
• c. Grow at more than 15 per cent a year
• a. Risky
• b. Secure
• c. Very secure
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Final Scores:
8-13 -- Very low risk capacity. Stay away from direct stock market investing.
This adventure sport is not for you. All equity exposure should come through
mutual funds.
14-19 -- Medium risk capacity. You could look at allocating a small part of
your equity asset allocation to direct stocks. Build a core portfolio with funds
and then selectively use direct stocks to take more risk.
20-24 -- High risk capacity. You certainly have the ability to go white water
rafting. Use the five tools we discuss to stay dry. Happy stock picking!
END OF CHAPTER X
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Achievements:
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CIO: Could we start off by asking you what your overall investment
philosophy is?
RAAMDEO AGRAWAL:
When I began my travails with the stock market, there was a strong
desire to make big money. But I did not know how to go about thing so. Even to
make a modest beginning, you needed some capital. Now, where does one get
the first few thousand rupees to start with? I needed an idea that would enable
me to begin without the comfort of adequate seed capital.
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Always be vigilant
CIO: You say buy and hold but don’t buy and neglect.
RAAMDEO AGRAWAL: Yes, you have to be constantly
watching. In India, the economy as a whole is changing.
Even in the larger economies, things are not stable. The
whole environment is dynamic and as circumstances
change, the prospects of the stocks you hold also change.
Say for instance you hold shares of a company that
manufactures pens. If the customs duty on raw material
increases or if the import duty on finished pens falls, it could
have an adverse impact on the company’s profitability. If you
do not keep a constant vigil on the businesses you have
invested in, you could be caught on the wrong foot.
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CIO: But right now we are witnessing tremendous volatility in the
market. In such a scenario, wouldn’t diversification help?
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affected by market volatility in the same manner and they all fell in line with or
faster than the market indices, I would be deeply concerned.
However, I have never encountered such a position. It is always the
poor quality stocks that are most affected by market volatility and you need to be
extremely worried if your portfolio is made up of such stocks. Risk arising out of
market volatility cannot be eliminated unless you go into cash. So I’m not
particularly concerned about market volatility so long as my portfolio is colorful.
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credible. A sustained high ROE, low gearing and a growing stream
of profit is always associated with some unique business
philosophy that has been guiding the company.
Not so much for the profit it has made for you, but because there is
so much of consensus that it is such a great stock. If it is widely agreed upon that
Infosys is a great company and it occupies the front pages of not only the
national business dailies but also the global headlines, then it becomes difficult to
take a contrary stand and sell the stock. It is not easy to follow a disciplined
approach to investing. I have also been guilty of breaking my own rules in the
recent times. I am not a good enough artist.
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of Rs 100. So, wisdom is in getting rid of the stock at any price once you realize
that your story has gone wrong.
CIO: You had recently talked about a slightly different or a new valuation
tool, which you call the payback ratio. Could you discuss what this
payback ratio is and how it works?
RAAMDEO AGRAWAL: Yes, as part of our study on “Wealth
Creation,” we had talked about the payback ratio or the
purchase price recovery ratio. The current P/E should reflect the
figure growth scenario for a company. But we find that one can’t
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really figure out clearly how much growth is assumed. If the P/E is
5, does it mean that the company can grow at 5 percent? I don’t
think it is so. So, the P/E per se is not a very good indicator of
growth.
The problem with PEG is that it takes into account the last two or
three years that we include. It assumes a static condition for G going forward,
which is not true. I mean it is coming to everybody’s notice in the last three month
that whatever we had assumed in December is no longer true. So, the stocks
that we had found to be suitably price based on PEG calculations then, appear
expensive now. This is because G has fallen. So we said let’s take a more
relevant measure. I think if you bought a company at a price that is less than the
present value of its future cash flows, you’d have made a good investment.
The issue here is how far into the future should one go? We
assumed a five-year time frame and experimented with past data of recent multi-
baggers to see if the theory worked.
We took their market capitalization as they stood in 1995 and
added their profits for the next five years to see whether they ‘paid back’ their
market prices during that period. Infosys’ payback ratio in 1995 was less than
one. It could recover more than what it took to buy it in 1995 in the next five
years. Today I have the benefit of saying this because I am looking back.
In 1995, you would have paid a price of Rs 380 crores for Infosys
and in the next five years it would have earned Rs 500 crores. But had you
bought it then, your wealth might have had multiplied by as much as 220 times.
The rewards of identifying such companies at the right time can be truly great.
In our last two studies we found that the overwhelming majority of
the companies that do well on the stock markets show an earnings growth of at
least 25 percent over the last three-four years. This may not be a sufficient
condition. There are companies that grow at 25 percent but even then they do
not make money. However, companies that are not growing at 25 percent
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definitely don’t make money. So, the condition that a company should be growing
at 25 percent is a good starting point.
Unless I believe that a company’s earnings will double in the next
five years, I do not consider an investment in it. Zeroing in on a low payback ratio
is basically about trying to see whether the company can grow its earnings by 25
percent on a consistent basis. If you are saying that 25 percent should be the
earnings growth rate, 25 percent should be the ROE then you PEG ratio should
be 1/2. So, if you pay 11-12 times current earnings of this kind of company and if
your projections are right, it is unlikely that you will not make money.
How much money you finally make will depend on the euphoria that
the company generates. Five years back, Hero Honda had done better than
many of the software companies on several parameters – whether it was free
cash flow or earnings growth rate.
But there had been no euphoria about the auto company. Thus, we
saw that while Hero Honda’s P/E fell from 35 to 8 during the period, it went up
from 8 to over 250 for IT companies.
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you start with the valuation first, you could land yourself in serious
trouble.
CIO: Given that there are 10,000 listed companies, what
really determines your population of companies or your circle
of competence? How do you go about determining what
companies you would consider investing in? How many
companies from the universe you would select from?
RAAMDEO AGRAWAL: You can afford to completely
ignore most companies. There are just about 100-150
listed companies that are really worth even looking at.
CIO: How important is liquidity in your investment decision making?
RAAMDEO AGRAWAL: I
give liquidity a lot of
importance. In fact, I have
let go of a number of good
opportunities in the past
because the stocks
concerned were not listed.
I am stuck with one of my
largest investment
because it is not listed. So
I hate to invest in company
which is not listed. But I
am not averse to investing
in stocks that are out of
favor I just keep my
tension levels low. I’m not
looking for stocks that
should have trading
volumes of one or two
million.
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CIO: Having
invested in a stock, how frequently do you update yourself?
RAAMDEO AGRAWAL: In fact, I spend lot of time doing that. It’s
good you asked me that because I need to put it in perspective. I
have my own research department and I kind of eat what I cook
most of the time – 99 percent of the time. There is constant
monitoring with the help of the respective squadron leaders. There
is a practice of getting a valuation sheet organized value wise and
business wise every day although I don’t really look at it on a daily
basis. But the records are maintained so that I am able to go
through them whenever I feel that there is a need to do so. It is,
nevertheless, a continuous process.
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Warren Buffet
Background:
Investment philosophy:
Investors should bet on companies that not only fit the Value
Investing criteria, but their business should have solid economics behind it. They
should ask questions about the earnings growth and consistency in margins
return on equity and whether they retain earnings for future growth.
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Step 2. Don’t worry about the Economy.
Step 3. Buy a Business, not a stock.
Step 4. Manage a Portfolio of Businesses.
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outstanding business for a number of years, what happens in the market on a
day-to-day basis is inconsequential. You will be surprised that your portfolio
weathers nicely without you constantly looking at the market. If you don’t believe
so, give yourself a test. Try not to look at the market for forty-eight hours. Don’t
look at a machine, don’t check the newspaper, don’t listen to a stock market
summary, don’t read a market dairy. If after two days you companies are well, try
turning off the markets for three days, and then for a whole week. Pretty soon
you will be convinced that your investment health has survived and that your
companies are still operational, despite your inattention to their stock quotes.
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speculation. Whether you correctly predict the economy or not, your portfolio is
continuously adjusted to benefit in the next economic scenario. Buffett prefers to
buy a business that has the opportunity to profit regardless of the economy. Of
course, macroeconomic forces may affect returns on the margin, but overall,
Buffett’s businesses are able to profit nicely despite vagaries in the economy.
Time is more wisely spent locating and owning a business that has the ability to
profit in all economic environments than by renting a group of stocks that do well
only if a guess about the economy happens to be correct.
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Now that you are a business owner as opposed to a renter of
stocks, the competition of your portfolio will change. Because you are no longer
measuring your success solely by price change or comparing annual price
change to a common stock benchmark, you have the liberty to select the best
businesses available. There is no law that says you must include every major
industry within your portfolio, nor do you have to include twenty, thirty, forty, or
fifty stocks in your portfolio to achieve adequate diversification. If a businesses,
why should it be any different for the owner of common stocks?
Buffett believes that wide diversification is only required when
investors do not understand what they are doing.
The “know-nothing” investors should use an index and dollar cost average
purchases. There is nothing shameful about becoming an “index investor.” In
fact, Buffett points out; the index investor will actually outperform the majority of
investment professionals. “Paradoxically,” he notes, “when dumb money
acknowledges its limitations, it ceases to be dumb. “On the other hand, “Buffett
says, “if you are a know-something investor, able to understand business
economics and to find five to an sensibly-priced companies that possess
important long-term competitive advantages, conventional diversification makes
no sense to you. “Buffett asks you to consider:
Investors can measure the economic progress of their business
portfolio by calculating their look-through earnings, just as Buffett does. Multiply
the earnings per share by the number of shares you own to calculate the total
earnings power of your companies. The goal of the business owner, Buffett
explains, is to create a portfolio of companies that, in ten years, will produce the
highest level of look-through earnings.
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Because growth of look-through earnings, not price changes, now
becomes the highest priority in your portfolio, many things begin to change. First,
you are less likely to sell your best businesses just because you have profit.
Ironically, corporate management understand this when they focus on their won
business operation. “A parent company,” Buffett explains, “that owns a subsidiary
with superb long-term economics is not likely to sell that equity regardless of
price.” A CEO wanting to increase the value of his business will not sell the
company’s “crown jewel.” Yet this seems CEO will impulsively sell stocks in his
personal portfolio with more logic than “you can’t go broke taking a profit.”
END OF CHAPTER XI
“An investor needs to do very few things right as long as he or she
avoids big mistakes”
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TOP PICKS
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Retail Sector 1. More PANTALOONS
Spending power INOX
2. Diwali PVR
Festival
3. Increase in
Sales.
My Investment Strategy
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But then I decided to buy shares for delivery, for that I started
investing in IPO’s, which I believe is the easiest path of earning good profits in
equities.
But after completing this project, I came to a decision, to change
my behaviour, and my investment strategy. Want to become a Long Term
Investor, or a Value Investor. My aim while purchasing a stock I will its balance
sheet and several ratios, which are required while analysing the correct price.
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Conclusion
Before you attempt to buy your first stock, be aware that you are entering
a battlefield populated by sharks that want your money. If you are going to invest in the
market, you must fight them with knowledge (a very effective shark repellant). If you
aren’t willing to do your own homework (independently do research on companies and
stocks) and must depend on a stockbroker or a stranger on television to tell you what
stocks to buy or sell, you are destined to lose money. You have no one to blame but
yourself when you do.
If you lose money, the government won’t help you, nor will your broker.
Remember that making money in the stock market is serious business. It is as serious
as raising children or working at a fulltime job. In the end, you must take responsibility
for your own investments. You’re completely on your own.
Now that you are aware of the risks as well as the rewards, you have
choice. If you are willing to take the time to learn what works on Dalal Street, you can
survive and prosper as a twenty-first-century investor.
On the other hand, if you decide that stocks are not for you, at least you
have a better understanding of how the stock market works. This misinformation that
should help you no matter what you decide to do in the future. Always be on the lookout
for profitable money-making opportunities while remaining cautious. When in doubt,
however, don’t do it.
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BIBLIOGRAPHY
WEBSITES
www.bse.com
www.investopedia.com
www.investmentu.com
www.esnips.com
BOOKS
NEWSPAPERS
Economic times
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